THE ISSUE is - Whether premium paid by a tourist operator, seperately to RMCs for purchase of foreign currency, can be treated as commission payment requiring TDS deduction u/s 194H, when there is no principal agent relationship existing between the operator and the RMCs. NO is the answer.
Facts of the case:
A) The Assessee is in the business of tours and travels and in the course of such business it also engages itself in trading in foreign currency. During the assessment proceedings, the AO noticing that the assessee was also engaged in the business of trading in foreign exchange called for the details of such transactions. In response, the assessee furnished foreign exchange trading account wherein an amount of Rs. 51,13,680/- was debited towards commission payment. From the details submitted by the assessee, the AO found that assessee had not deducted tax at source on an amount of Rs. 19,09,775/-. When called upon to explain the reason for non deduction of tax at source on such amount, it was submitted by assessee that the payment was not in the nature of commission but premium paid separately to RMCs at Goa for purchase of foreign currency by the assessee from them and which they, in turn have purchased from foreign tourists. It was submitted, RMCs requested for reimbursement at card rate, i.e. the rate at which they paid to the tourists in order to keep track of profits earned by them on stock sold to the assessee. The AO was not convinced with the explanation of the assessee. He opined, though, the assessee had claimed to have entered into such transactions with RMCs on principal to principal basis, however the facts indicate a principal and agent relationship as the so called premium was debited under the head commission which was over and above the purchase price. Since, the assessee had not deducted tax at source on such payment, the AO disallowed the amount of Rs. 19,09,775/- u/s 40(a)(ia) of the Act. On appeal, the CIT(A) sustained the addition by holding that payment made by assessee was covered u/s 194H.
B) During the assessment proceedings, the AO having found that the assessee had debited expenditure amounting to Rs. 20,04,37,496/- on account of brokerage payment to various parties for arranging inter corporate deposits, called upon the assessee to furnish necessary details. After verifying party-wise details of brokerage payment furnished by the assessee, the AO alleged certain discrepancies in such payments and ultimately held that the payments are neither genuine nor for the purpose of assessee’s business. Accordingly, he disallowed an amount of Rs. 1,77,68,298/- out of the total expenditure claimed. On appeal, the CIT(A) deleted the addition made by AO.
the Tribunal held that,
++ as far as commission payment is concerned, the assessee has a foreign exchange division approved by the RBI and is authorised to buy foreign exchange and travellers cheques from RMCs and others and sell them to persons in need of them. RMCs are also authorised by RBI to buy foreign currency from non residents visiting various places in India. These facts would show that the RMCs are not agents of the assessee but are appointed by RBI. Though, it may be a fact that the assessee buys foreign currency from RMCs depending upon the needs, however, there is no principal agent relationship between the assessee and the RMCs. The RMCs are free to sell foreign currency bought from tourists to assessee, RBI or any other person authorised by the RBI to deal in foreign currency. It is also to be noted that both the RMCs as well as the assessee have shown foreign currency as their stock in trade. The assessee has no relationship with the persons from whom the RMCs purchase foreign currency and the assessee is no way connected to the concerned tourists. Therefore, in our view the transaction between the assessee and the RMCs is on principal to principal basis and there is no principal agent relationship existing between them. Merely because in the financial statement assessee has debited the amount as commission it cannot be treated so without looking at the real nature of the transaction. The AO must bring on record material to establish that there is a principal agent relationship existing between the assessee and the RMCs. No enquiry has been made by the AO with the RMCs to find out the real nature of transactions between them. Further, assessee’s contention that in no other place in India such premium paid has been disallowed requires to be taken note of. It is also relevant to observe, even in respect of premium payment in Goa, except, the impugned assessment year in no other assessment year such disallowance under section 40(a)(ia) has been made. That being the case, we are inclined to delete the addition made by the AO.
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